Tuesday, May 12, 2009

Protection Payments: Licensed vs. unlicensed radio rights

I have just realized the blindingly obvious: the main value of a radio license is the right not to be interfered with, rather than the right to transmit.

This claim should be testable by establishing the degree to which the protection against interference influences the prices of licenses sold at auction. I’m working with Johnny Chan at the University of Washington to generate some results in this area. It’s certainly true anecdotally; M2Z has argued that T-Mobile knew its AWS-3 license, which had an adjacent band which would generate more interference, was worth less and so paid less at auction.

Proponents of license auctions charge that unlicensed allocations mean that “people” (they’re thinking of Google and Microsoft) are getting something without paying for it. It’s true that users of unlicensed radios don’t pay for a license, and it’s also true that both kinds of licenses confer some permission to operate a radio.

But there’s a big difference: a licensee can stop others from interfering with their operation, whereas an unlicensed user not only may not interfere with licensees, but also has to accept interference from all comers.

The big difference between an exclusive-use license and an unlicensed regime is excludability rather than autonomy, to use terminology I defined in an earlier post (Protecting receivers vs. authorizing transmitters). (Regarding a property, exclusivity means an owner can control what other people do, while autonomy allows an owner to act without hindrance.)

However, since radio licenses are defined in terms of transmission rights rather than receiver protections, what’s being sold is autonomy rather than exclusivity.

In practice there is a gamut of license types, with increasingly strong excludability rights: from unlicensed, to licensed by rule, to secondary licenses, and then primary licenses. The more excludability you get, the more a license should be worth. We’re planning to do regression analysis on US auction results to see if this is the case.

If, as we’re working to show, the main benefit of a radio license is protection from interference rather than the right to transmit, then current radio policy is misconceived in focusing on transmit rights rather than receiver protection rights. While it’s true that defining transmit rights implicitly defines the receiver rights (again, see Protecting receivers vs. authorizing transmitters), not making receiver rights explicit guarantees downstream conflict, as the M2Z/T-Mobile argument over AWS-3 has shown.

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